Tag Archives: Business Bank account

Following on from our previous blog post in March about starting a business, after some feedback, we’ve decided to go into a bit more detail about our experiences, the pitfalls, and the things we learnt along the way. Hopefully some of it will prove useful to those thinking of going down the same route as us. For others, it may simply give you a feeling of relief that you never decided to start your own business!

Although we’ve listed below a few of the important stages and things to consider, this is no way an exhaustive list and simply a guide and is based on our own experience in setting up and running a cartographic service company. Some of the stages will, no doubt, be relevant to other business sectors but every situation is different and rule one is to learn to adapt.

Anyway, here we go…

The Business Plan
This is what you do (or what you should do) before you decide to take the plunge and go into business. Presumably, by this time you’ll have identified a market you want to operate in, whether this is selling your services to another company or to the general public, manufacturing something and selling it or buying and selling, you’ll still need to come up with some figures to convince yourself (and perhaps the bank manager too) that your idea is viable.

There’s plenty of information online about writing business plans, but the main point we’d stress is not to get carried away and make it too optimistic. Far better to look slightly on the pessimistic side. You may be fairly sure you can sell your services to companies A, B and C, not to mention D, E, F, G and all the other letters of the alphabet, but the fact is that you probably won’t – or, at least, you should assume you won’t necessarily be able to sell to all of them. You’ll possibly find that, a few years down the line, you’re selling to companies 1, 2 and 3 instead.

Most business plans cover the first 3 years of the business but, to be honest, whilst year one might be a fairly good educated guess, years two and three become quite speculative. You’ll soon find out that even year one has a habit of changing dramatically as it progresses and unexpected things happen which can throw your business Plan out of the window – sometimes for the better and sometimes not.

What we’re getting at is that you shouldn’t assume everything will work out perfectly when writing your business plan. Be a bit cautious and then you won’t be quite so surprised when things don’t quite turn out as expected. It’ll also show to others who may be interested (that pesky bank manager again, for instance) that you’re considering all the possibilities and that you’re taking a cautious, reasoned approach. And it’s always good to impress the bank manager, especially if you’ll be asking him, or her, to lend you some money.

Company formationThe main question here is, do you want to form a Limited Company or simply be self employed? In a lot of ways, being self employed is easier. There’s not all the filing of accounts at Companies House and you may not even need a separate bank account for your business. The advantage of being a Limited Company is that you, or, more accurately your company, can sometimes be taken more seriously as a business by some other companies and consumers. Also, as a Limited Company, you, as a director, are given some protection in Law if things go badly wrong (this is what the Limited bit means) although the directors themselves can be held liable if they don’t act within the Law.

Generally, if you have any ambitions to be big, form a company. If you think you’ll be just earning a few Pounds here and there as a window cleaner (I have no idea how much window cleaners actually earn to be honest, but simply pulled the occupation out of the air) then perhaps being self employed might be better as there’s certainly less costs and admin involved.

Accountant
Do you need one? Probably yes, if you’re going to be forming that Limited Company. You possibly won’t need or want one if you’re intending to be going down the window cleaning route. Either way, you’ll usually at least be able to go in to a few and have a half hour’s chat free of charge which may, possibly, give you some insight into your business venture. Your Business Plan which you wisely prepared earlier may be useful now as it will give the accountant some figures to use as a guide.

Before you use the services of an accountant make sure you know what you’ll be getting for your money and what will cost you extra. Do you want them to do your payslips, VAT returns, general bookkeeping etc as well as the Annual Returns and Accounts for Companies House? And will they actually file the Accounts for you or is that extra? As we’ve said, get what’s included spelled out in writing and, more importantly, what’s not included. Also, if you’re going to want a lot of hand holding (metaphorically speaking, hopefully) make sure you actually get on with the accountant and can talk to them.

Bank account
This should be straight forward but sometimes it isn’t. It all depends on what you want from your bank. If you’ve got lots of your own money, and don’t mind spending it, you possibly wont want all the bells and whistles (in this instance, bells and whistles refers to overdrafts, loans, mortgages etc). To use ourselves as a guide, we started off with NatWest and had a Business Advisor who came round to see us on a regular basis and looked over our management figures to see how the company was doing. We got a lot of good advice and plenty of guidance, but it did come with a monthly fee.

Overall, we think we got value for money in the early years. Again using ourselves as an example, some years down the line our situation changed and we didn’t need overdraft facilities, loans etc as the company supported itself financially and we, fortunately, had no debts either personally or as a company (we’d had some good years and paid everything off, including our mortgage) so, as a result, we decided to change our bank to what was Alliance & Leicester at the time (which became Santander later on).

A&L Bank was almost completely online with no advisors dropping in and no bells and whistles. They say switching banks is easy, and it probably is, but it’s all the peripheral stuff which makes it a bit more tricky. Probably the hardest part was making sure all our clients who paid by bank transfer changed their details before making payments. We were glad that we made the move but it’s not something we’d want to do too often. The big bonus was of course that the bank was now paying us money every month rather than the other way round – and that has to be a good thing.

Roles
If you’re a one man band (the chap up the ladder cleaning those windows), this won’t be relevant as you’ll be doing everything anyway, but for most of us one of the key questions is who is going to be doing what within the company. Although roles change, and you’ll find you have to be able to turn your hand to most things, having responsibilities at the outset is always a good idea. Decide who will be doing sales, who will be organising the admin, the wages, invoicing, purchasing, bookkeeping. All this comes down to what the strengths and weaknesses of the management team are.

Try and get agreement on this from the outset as it will save problems and recriminations later when the bookkeeping doesn’t get done, or no-one does the VAT return or you run out of tea bags or, worse, toilet paper (ooh, nasty).

Office or home?Again, this will depend on what type of business you are hoping to run. Businesses run from home used to be looked down upon but these days so many people are doing it that it’s a huge part of the UK economy.

If you think you need an office, and think very carefully before you make the assumption that you do, what size office do you actually need? And remember, at the moment there’s loads of office space available, which does put you, as the prospective tenant, in a very good position to negotiate. And negotiate hard. Don’t sign up for long term leases. Ask for a break clause after a year or two (as we said earlier, things can change quickly and you may need to upsize, or worse, downsize). Make sure you understand what all the costs will be – who pays for the utilities, are there any service charges (try, if you can, to avoid these as they are an open cheque book to the landlord or agent), how much are the Business Rates, do the offices have all the facilities you need (kitchen, enough toilets etc etc).

Don’t for a minute believe that, just because the estate agent has told you what the landlord’s terms are, that you have to agree to them. One of the commonest terms is that the prospective tenant must pay both party’s legal fees, both their own and the landlords. As a solicitor said to us when we were negotiating to take on our first offices, why on earth would you want to pay someone else’s legal fees? Keep it in mind, everything is negotiable. If you’re not happy with it, walk away.

StaffYou may have thought that dealing with bank managers, accountants, solicitors, estate agents and all the others was difficult and stressful but, believe me, that was a walk in the park until you begin the process of employing staff.

Once again, you need to think very carefully here, do you actually need to employ people? Can you get by with using contractors or freelancers?

Employing people has to one of the trickiest parts of running a business. It’s partly the problem of getting the right people (can you weed out the unsuitable ones at interview stage?) and, once you get people in, can you keep them? And can you do it all without upsetting anyone?

If you set high standards for your company (and why shouldn’t you?) you’ll probably end up eventually having to terminate the employment of someone who hasn’t made the grade. How do you feel about doing that? And do you feel capable of doing it and not falling foul of the ever expanding laws on discrimination, unfair and constructive dismissal? It’s a minefield and you have to tread very, very carefully in minefields.

The Law used to be that you could dismiss within one year without giving a reason, so long as you weren’t discriminatory etc, but that changed a couple of years ago to two years, which does give a bit more leeway if you make a mistake employing someone or they simply go off the rails.

We only ever had one employee over all the years claim indignantly, upon dismissal, that ‘he knew his rights’ but it turned out, when he went away to think about it, that he didn’t. But, do be careful, as we said, it can be a minefield.

With hindsight we shouldn’t have employed a lot of the people we did over the years. Yes, we would have worked with them but, looking back, we should have worked with them as freelancers, which is what we do these days.

Nowadays, our team of freelance cartographers all work to a fixed price for the work we give them, unless, of course, the brief changes. Work comes back to us on time (no excuses such as ‘It’ll take as long as it takes’ which we had from staff perviously – not much help when you’re trying to advise a client of the schedule). We don’t have to worry about paying sick pay, national insurance or holidays. And, best of all, you don’t have to be constantly looking over people’s shoulders to make sure they’re not sitting there at a computer messing around on Facebook all day – yes, we’ve had that one too!

But, if you do go down the freelancer route, make sure they are actually freelance and you’re not actually employing them without realising it. Take a look at the HMRC website for advice on what constitutes being an employee.

And pay your people, whether staff or freelancers, on time. Nothing is going to ruin your reputation quicker than being a late payer.

Approaching companies for workSometimes this is difficult. It will really depend on your business as to how you approach it. If you’re selling double glazing (nothing wrong with that, honest) you’ll probably knock on every door in the street to try and sell your product.

Now us at PCGraphics, we draw maps and knocking on everyone’s door, whether in a street or business park, would be a complete waste of time. Maps aren’t the same as double glazing (nothing gets past us here) and you can’t sell maps to people who don’t want or need them and it’s wasted effort to try. So, target your market. Who wants your product or service? Where can you find them? Should you ring them or write? We’ve formulated our own technique and it’s worked since 1998. But we’re not going to tell you how we do it, you have to work that bit out for yourself, sorry.

WagesYou’ll probably want to pay yourself wages, sounds obvious doesn’t it? But, maybe you don’t. Companies can pay dividends as well as wages to shareholders. As the owner of the company you’ll probably be a shareholder and a director. It can have tax advantages to pay yourself a dividend instead of some of your salary and this is something you’ll want to discuss with an accountant as it’s important to know when and if you can pay a dividend. Get it wrong and you could find yourself in deep trouble.

If you employ staff it’s conceivable that they’ll probably want to be paid. It’s an inconvenience, I know, but they tend to get upset if they’re expected to work but not get paid for it. If you don’t know what you’re doing with PAYE and National Insurance, or you simply don’t want the hassle of it, there’s many companies out there who will do the paperwork for you. It’ll cost, of course, but possibly not as much as you think. Another advantage of outsourcing the PAYE is that when staff have queries about their payslip you can refer them to the wages company. It’s one less thing to worry about. For the self employed window cleaners amongst us it’s probably easier to do it yourself.

When starting out and thinking about taking on staff, also consider the extra costs involved and not simply their salaries. Apart from their wage, you, the employer, will have to pay extra in National Insurance payments – this is in addition to what is deducted from the employees wage each month. Have a think too about what sick pay you’ll offer – you don’t have to offer anything more than Statutory Sick Pay (SSP) and, while only paying this limited amount may seem somewhat stingy, it does cut down on the number of sick days that staff take during a year. It’s strange how so many fewer employees will have stomach problems, sickness, flu or whatever when they realise they won’t get paid for those Fridays or Mondays they spend at home. It’s a hard fact, but true. You’re not running a charity and staff need to turn up for work unless they truly are ill, and, if they are, you really don’t want them there anyway.

AccountsIf you can read, and understand, a Balance Sheet you possibly don’t need any advice about this. If, like most of us, the Balance Sheet is simply incomprehensible you’ll need an accountant to produce your accounts. If you form a Limited Company, every year you’ll be filing your accounts at Companies House. These will probably be Abbreviated Accounts in the first few years until your turnover builds up. Talk to your accountant about the figures in these as you, ultimately, will be responsible for them.

People also talk about accounts when they are referring to, and mean, bookkeeping. Although you can outsource this to accountants and the like, I’d actually suggest doing it yourself as it will make you much more aware of expenditure and whether you, as a company, are making money or not. Every month, for your own benefit as well as for others, you should produce a Profit and Loss statement which will hopefully show you how much money you’re newly formed company is making. It should also alert you to any shortcomings – expenditure too high, turnover too low, overheads and other costs getting out of control etc.

Your biggest struggle, if you’re doing the bookkeeping yourself, will probably be to find an accounts package that is user friendly and produces the reports you want and is affordable. You may also want to consider whether your accountant will be able to access the files that your accounts software produces. If he or she can’t you may end up with a lot of extra costs as the accountant will have to wade through all your paperwork and receipts to re-enter all the figures on their own system. So, choose carefully.

We work on Macs at PCGraphics and it’s always been a bit of a struggle to find suitable accounts packages to run on them. These days you can work online (Cloud accounting) and many find this suitable, although what happens when you can’t get an internet connection is a valid question. For ourselves, we now do our bookkeeping on the iPad in an App called EasyBooks. It works well for us but have a look around and see what suits you best. And don’t forget to factor in any costs for bookkeeping software into your initial business plan as some accounts software companies charge a monthly fee to use their service.

VAT, HMRC etcIf you register for VAT, and it’s compulsory if your turnover is above £81,000, you have to add VAT to every invoice you send out. You can register below this amount too and it may be worth considering, especially if your company is Business to Business (B2B) rather than Business to Consumer (B2C), as you can reclaim the VAT on any purchases. VAT predominately affects consumers as many businesses reclaim the amount but consumers can’t.

Some advice we were given early on we shall pass on here. Always, always, always pay your VAT, and indeed any payments to HMRC, on time even if it means delaying something else. If money is tight it would be better to delay payment of your own wage or rent on any office space rather than delay paying HMRC. They are always first in the queue for money and it’s best to remember that. Keep a good diary with notes and reminders as to when important payments are due, whether it’s VAT, Corporation Tax, or whatever. And don’t put off the payment until another day as you’re likely to forget.

If it all goes horribly wrongSometimes it does happen, but if you have a tight control of finances you should be able to keep the chances of financial disaster to a minimum. All companies have cashflow problems at one time or another but you should be able to get through most of these with good financial planning (and with a realistic business plan to start with).

The main advice here is, don’t stick your head in the sand and hope it will go away. It won’t. See what you can do by juggling payments. Is there anything you can invoice early – and this is important as you need to consider, generally, when you expect customers to pay you. Talk to your, hopefully helpful, bank manager. If they are supportive, and they will usually be if they see you have a viable business and can pay any money back, then talk to them about overdrafts, loans or company credit cards. Of course, if you’ve gone along to them initially with a half baked business plan and little understanding of what you’re doing, then you probably won’t come away with any of their money to tide you over.

But remember, if you do borrow money from the bank or any other source, you’ll need to be able to pay it back at some stage. Most lenders will demand a personal guarantee from you to secure the funds and this will effectively put your own home at risk if you fail to repay.

Ultimately, if things are really bad, you may have to close the company down. If you do it properly there should be nothing to stop you starting up again in the future. What does antagonise many people though, and quite rightly, is when companies go broke through bad financial planning etc and then the directors start up a new business, often with a very similar name to the original and operating in the same market sector but simply walking away from all their debts. These are called ‘phoenix companies’ as they rise from the ashes of the previous company. Legally you can do it, but morally most people would see it as wrong as many companies and individuals are left being owed thousands of Pounds with no hope of recovering it. To our knowledge, there are a few cartographic companies out there who have done this but for most of us it would be frowned upon.

More infoThere’s loads of websites and organisations out there who will offer help in varying degrees to people starting off in business. If you have general queries you could do worse than log onto the UK Business Forum.

In the early days we subscribed to various newsletters and articles covering Human Resources, staff, tax and others. All these cost money but sometimes it can better to pay for advice especially of a legal nature. Remember though to shop around for solicitors in the same way as you did for your now trusted accountant. Not all solicitors are alike and they specialise in different aspects of Law. A solicitor who was great acting for you in that messy, acrimonious divorce possibly won’t be so knowledgeable when it comes to writing a staff contract or overseeing the lease on your shiny new offices. Shop around.

That’s about it. If you’re starting up in business, good luck, you’ll probably need it somewhere along the line. But you’ll also, hopefully, enjoy the experience too. After all, nothing beats being your own boss – does it?